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CA Intermediate · Cost and Management Accounting · Process & Operation Costing

Which one of the following best describes operation costing as distinguished from process costing?

Operation costing is a hybrid method: materials are charged to specific batches, while conversion costs are collected operation-wise and averaged over the units passing through. It differs from pure process costing, where all costs flow continuously, and from job costing, where each job has its own costing.

  1. AIt is used for homogeneous output where each process has a single continuous flow and no batches are identified
  2. BIt is a hybrid method where work is done in batches and the cost of materials is charged batch-wise, while conversion costs are averaged for each operationCorrect
  3. CIt is used only where each job is executed to a customer's specification and costed separately
  4. DIt is used only for services where the unit of cost is a composite unit such as tonne-km

Explanation

Operation costing is a hybrid of job (batch) costing and process costing. Material costs are identified with each batch or product, while conversion costs are accumulated for each operation and averaged over units. Option A describes pure process costing, and option C describes job costing.

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